RBI to come out with guidelines on foreign banks soon

The Reserve Bank will soon come out with comprehensive guidelines on foreign banks to encourage them to convert into wholly owned subsidiaries and enjoy near-national treatment.

"While it will not be mandatory for existing foreign banks (i.e., banks set up before August 2010) to convert into WOSs, they will be incentivised to convert into WOSs by the attractiveness of the near-national treatment afforded to WOSs," RBI Governor Raghuram Rajan said in the Second Quarter Review of Monetary Policy 2013-14.

The initial minimum paid-up voting equity capital or net worth for a WOS shall be Rs 500 crore, Rajan said, adding, "It is proposed to issue the scheme by mid-November."

Such WOSs would be treated at par with domestic banks, including in the matter of opening branches.

The RBI is working to nudge large foreign banks with 30 or more branches in India to get incorporated locally.

These banks are open to the idea of local incorporation provided they get a level playing field with local banks and a waiver

on stamp duty.

The central bank released a discussion paper on the presence of foreign banks in India on January 21, 2011, factoring in lessons from the 2008 global meltdown, which favoured a subsidiary mode of presence from a financial stability perspective.

Taking into account feedback from stakeholders, it said a scheme of subsidiarisation of foreign banks in India, guided by the two cardinal principles of reciprocity and single mode of presence, is being finalised.

According to its commitments to the WTO, India allows 12 new foreign bank branches in a year.

In India, there were 43 foreign banks operating through a network of 333 branches as of March 2013.

Also, 47 foreign banks have representative offices in the country.

Standard Chartered, the largest foreign bank by branch presence in India, has its depository shares trading on the domestic bourses, although it hasn't adopted a subsidiary route in India.

Only multinational banks StanChart, HSBC and Citi have more than 30 branches in the country.

Although the Royal Bank of Scotland has 31 branches, it is winding down local retail operations.